Unless an LLC with at least two members files Form 8832 and elects to be taxed as a corporation, it is considered a partnership for income tax purposes.
There are state statutes involved when creating a limited liability company. It really depends on those that are made by the members of the LLC, the IRS will treat this entity like a partnership, corporation, or a disregarded entity.
When you are forming a domestic LLC and must have at least a couple of members, and it will be classified as a partnership for federal tax purposes, requiring form 8832 to be filed and will be treated as a corporation as well.
Income tax purposes come into question, especially with one member LLCs which will lead to it being disregarded as a separate entity from its owner unless form 8832 is filed so it can be looked at as a corporation.
The purpose of employment tax, as well as excise taxes, is why a one-member LLC is regarded as a separate entity.
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Classification
Entity classification rules can classify business entities of corporations:
A business entity that is formed under a statute, either federal or state, can be recognized as an Indian tribe or may be referred to as a corporation, or as an entity that is incorporated, by the body corporate or the body politic.
There are certain associations and regulations that must be followed.
Business entities that form at the federal or state level per the statutes will describe will refer to these entities as a stock joint Association.
State-chartered businesses that form these entities for conducting activities related to banking must consider the deposits that are being insured by the FDIC.
A wholly-owned business entity under political or state supervision can be wholly owned by a foreign government as well, as stipulated by these regulations.
A business entity, under code section 77011(a)(3) is a taxable entity.
Certain foreign entities form 8832 instructions
Most LLCs are not just included on this type of list and therefore must be treated just like a corporation. When they file this form, the entity classification election will allow them to elect a business entity classification.
Entity classification rules, as well as a domestic entity, represent one member that is part of this default partnership. If there are multiple owners, the default classification will be determined by this form so it can be classified as either a partnership or a taxable corporation.
In addition to this, Form 8832 can be used to file changes that are related to the LLC. If it has been treated, for example, as a partnership, you can change the classification so that it will be treated as a corporation instead.
Filing
If the LLC is regarded as a partnership, there are tax rules that must be abided by, requiring the filing of Form 1065, a form that represents a return of partnership income.
Pro-rata data is going to be used, along with deductions and credits that will be listed, etc. Generally, people that are part of this LLC filing, specifically looking at Partnership Returns, are going to have to pay some form of self-employment tax that is representative of the partnership earnings that have been accrued throughout the year.
A corporation, if it is an LLC, must abide by corporate tax rules, and if that is the case, Form 1120 must be filed which is part of the US Corporation Income Tax Return. These are typically for what is called a C Corporation when filing those tax returns, and there’s not going to be any flow-through items, such as with a 1040 form, or a 1040 SR form, when filing a C Corporation return.
However, if you have an LLC that is going to be converted to a standard S Corporation, using Form 11205 is likely the best choice, for several reasons. The income tax return when filing for S corporations will require you to look at specific instructions that pertain to S corporation laws, as well as US tax return information, that will apply to the LLC.
Each of the owners is going to report their share of pro-rata data pertaining to corporate income, deductions, and credits which will be presented on schedule K-1 or Form 11205.
Read more on Offshore LLCs here.